In a recent Doonesbury cartoon, a telephone operator at a company called MyFacts.com helpfully suggests to a grateful anti-Obama caller that an acceptable new definition of socialist is “A black man with power.”
That is certainly how it’s being used among a disturbing swath of the population.
But to step out of the election-year melee for a minute, I’d like to propose another new and apparently contradictory definition: a neoclassical economist who understands the theoretical underpinnings of his or her own theory.
We all know that a certain segment of the elite likes to privatize gains and socialize losses. I think that’s enough to call them socialist. But that’s not what I mean.
No. I mean that when you get into reading about it, that uncomfortable feeling many of us have about the irrational assumptions, contradictory results, and lack of empirical evidence that underlies neoclassical economic theory actually goes far deeper than nearly any of us understand.
Now, this is certainly not something I’ve proven myself. But I’ve gone on a little economics self-education spree, and what I’ve found surprised me. I have a special category in my head for nonfiction work that blows open my expectations and teaches me something new. Books that only reinforce something I already know or phrase it really well don’t qualify. And Debunking Economics, written by Steve Keen, an Australian economics professor who was, according to one literature review, one of only 12 people in the world to have accurately predicted not only the housing-bubble burst, but the chain reaction it would cause in the financial sector, definitely qualifies. In chapter two and three, he destroys the idea of a market-supply-and-demand curve, for example.
I can’t reproduce his entire argument here, because it is very careful and detailed, but one particular facet really jumped out at me as a highlight of the absurdity of the way that neoclassical economists behave like zealots, not scientists. Neoclassical economists have struggled and struggled to actually prove a central tenet of their faith: that individual demand curves can be aggregated into a market demand curve. In undergraduate-level textbooks, that’s presented as an intuitive and unqualified yes. In graduate level texts, it becomes qualified a little. But if, as Keen does, you go looking for the actual original proofs, you discover a stinking pile of dirty little secrets: The assumptions that are required to make them work out are actually impossible—amounting to a disproof by “reductio ad absurdum”—showing your starting premise generates a logical impossibility.
The idea of market demand curve results in many of these, including that everyone has the exact same tastes, and that as our income rises we spend the same proportion of our incomes on the same things. (Can you imagine any single item that a millionaire and a person getting by on public assistance would spend the same proportion of their money on?) But the zinger, in terms of the political posturing of the economist-worshiping class, is that neoclassical economists needed yet another assumption to make their theories check out. And it is this: a benevolent central authority redistributing income.
Yes. To make their basic model work, they need to redistribute income, so that the value of another dollar is the same for everyone.
Let’s say that again: Neoclassical economics assumes redistribution of income.
So much for the argument that we shouldn’t have progressive taxation or other forms of social goods like national health care because “the market” generates the optimal distribution of income for social welfare. Despite all the inveighing against any such thing as being a shackle on the benevolent invisible hand, in fact, the “market” as those who currently dominate the field of economics understand it requires a far more radical redistribution than any progressive taxation proposal the country has seen.
Now, this doesn’t mean that there wouldn’t be negative or unintended consequences to some redistributive policies. It doesn’t tell us what we should do. But it does tell us who we shouldn’t let cut the conversation off. We need to stop deferring to experts whose entire models are built on a house of cards. We need to stop avoiding the hard work of having a thorough conversation about our policies and which ones we as a country want to choose for ourselves, and when we have it, we need to stop letting some “market” trump card shoot down otherwise promising options.
Socialist, capitalist, whatever. Let’s employ democracy and use it to talk about what happens in the real world, and what the weight of evidence, rather than fairy tales hidden behind mathematical formulas, says is likely to make it better.